Canada Boosts Auto Fund by C$500 Million to Lure Chrysler

By Jacqueline Thorpe -
Feb 11, 2014

Canada is increasing funding for
automakers by $500 million ($454 million) in a bid to attract
more investment from companies such as Chrysler Group LLC to an
industry reeling from global competition and declining output.

The government will bolster its Automotive Innovation Fund
over two years, adding to the C$316 million invested in six
projects since 2008, according to the budget released today by
Finance Minister Jim Flaherty. The fund, which provides
repayable contributions to automakers for large-scale research
and development projects, has attracted private-sector
investments of as much as C$2.3 billion, budget documents show.

The fresh incentives come as Chrysler is reported to be
considering at least a C$2.3 billion investment in its Windsor,
Ontario minivan plant and has asked the federal and Ontario
governments for subsidies. Canada’s auto industry is shrinking,
with Mexico expected to surpass Canada as the biggest exporter
of cars to the U.S. in 2015, according to consultant IHS
Automotive.

“The government and Ontario are actively engaged in
discussions with Chrysler,” Jayson Myers, chief executive
officer of Canadian Manufacturers and Exporters, said at the
budget lockup in Ottawa. “This is a signal the federal
government has money to bring to the table.”

Chrysler, owned by Fiat SpA (F), is asking for contributions of
at least 20 percent, or C$460 million, from both levels of
government to upgrade the minivan plant and for new research and
development, the National Post reported on Feb. 7, citing people
it didn’t identify.

Investment Support

Shawn Morgan, spokeswoman for Auburn Hills, Michigan-based
Chrysler, declined to comment on the potential investment.
Sergio Marchionne, CEO of Chrysler will give the keynote speech
at the Canadian International AutoShow in Toronto on Thursday.

The new funding “will support private sector investment in
the long-term competitiveness of the Canadian automotive sector
and create and sustain jobs and economic growth,” the
government said in its budget.

The money adds to Canada’s investment in the car industry,
where it holds a 6.9 percent stake in General Motors Co. (GM), the
largest U.S. automaker. The federal and Ontario governments are
the second-largest shareholders in Detroit-based GM, with a
stake that was worth $3.84 billion as of yesterday. Canada has
maintained its holding even after the U.S. government sold its
GM shares.

The auto industry represented 10 percent of manufacturing
gross domestic product and 14 percent of total merchandise
exports in 2012 and employs more than 115,000, according to the
budget.

Mexico Production

The industry has been struggling to attract investment
after the Canadian dollar rose above par with its U.S.
counterpart in the wake of the financial crisis, and auto
companies directed investment to cheaper locations in the U.S.
south and emerging markets. The Canadian dollar has fallen to
four-year lows over the past year to about 90 U.S. cents.

By 2015, U.S. sales of autos from Mexico may climb to 1.9
million, topping Canada’s 1.87 million, Lexington,
Massachusetts-based IHS has estimated.